Research and analysis

Making Tax Digital for VAT final evaluation

Published 27 February 2025

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A final evaluation report summarising the main evidence and conclusions of HM Revenue and Customs’ (HMRC) impact evaluation of Making Tax Digital for Value Added Tax (VAT).

1. Executive summary

This report concludes HMRC’s impact evaluation of Making Tax Digital for Value Added Tax (VAT), providing a synthesis of previously published evidence to give a final assessment of how the policy has performed against its objectives.

The main findings of HMRC’s evaluation of Making Tax Digital for VAT are:

  • Making Tax Digital generated additional VAT revenue as forecast. The central estimates were around £57 and £19 per quarter per business for businesses above and below the VAT threshold respectively. The estimated amount of additional tax revenue raised was in the range of £185 million to £195 million in 2019 to 2020, similar to the amount Making Tax Digital for VAT was forecast to raise

  • Making Tax Digital was relatively straightforward to comply with for a majority of customers. Most experienced benefits as well as costs. Around two-thirds found signing-up to Making Tax Digital easy. Over half found compatible software easy to find. Around 60% found making their first Making Tax Digital submission easy, rising to over 70% for ongoing submissions thereafter. Making Tax Digital increased customers’ confidence their VAT was right, with those mandated in 2019 more likely to experience this (53% compared to 27% mandated in 2022). Over half incurred financial costs with Making Tax Digital whereas over two-thirds experienced at least one benefit

  • Making Tax Digital software has wider economic benefits beyond tax. Fully functional Making Tax Digital software had operational and financial benefits for two-fifths of businesses and acted as a spur to digitalisation for one-fifth. 45% said Making Tax Digital software had saved them time. Estimated time savings were 26 to 40 hours per business per year on average for all those using fully functional software. The total value of this time was estimated to be £603 million to £915 million

2. Introduction

2.1 Policy objectives

Making Tax Digital is a key part of HMRC’s Tax Administration Strategy. This transformation of the tax system is designed to help reduce the tax gap by requiring businesses and individuals to:

  • keep digital records of business finances including income and expenditure

  • use software that works with Making Tax Digital

  • submit updates to HMRC every quarter, bringing the tax system closer to real-time

Making Tax Digital was first introduced for VAT. It became mandatory from April 2019 for VAT registered businesses with a taxable turnover of £85,000 or more and then from April 2022 for VAT businesses below this threshold. It supports HMRC’s plans to digitalise the tax system and is currently also being developed for Income Tax Self Assessment. The objectives of Making Tax Digital for VAT were in 3 areas:

  1. tackling the tax gap by reducing customer error and failure to take reasonable care

  2. customer impacts: making it easy for customers to use and get their tax right

  3. wider economic benefits: contributing to wider productivity gains for businesses through digitalisation

2.2 Evaluation scope and methodology

This report concludes HMRC’s evaluation of Making Tax Digital for VAT. It provides a synthesis of the main findings of previously published evidence to provide the final assessment. Following Magenta Book guidelines, it was primarily an impact evaluation focussed on measuring achievements against the policy objectives of Making Tax Digital outlined above.

VAT administrative data businesses submitted to HMRC before, during and after their transition to Making Tax Digital were the foundation for the evaluation. A mix of methodological approaches were then used to gather robust evidence of impact. The main techniques were:

  • social research: externally commissioned independent research evaluated the range of customer impacts, experiences and perceptions of businesses joining Making Tax Digital. Qualitative research was used to first gather the range of experience amongst businesses, followed by quantitative research to obtain robust data on the impact of Making Tax Digital once it had bedded in

  • quantitative methods: these evaluated additional tax revenue from Making Tax Digital. Robust estimates were generated by comparing differences in tax liability between groups of similar businesses, both in and out of Making Tax Digital, before and after it was implemented

This report focuses on evidence from 4 published quantitative studies: IFF Research (2021), HMRC (2022), Verian (2024), and Verian (2025). Details of these and other research are in Annex A of this report.

3. Tackling the tax gap

3.1 Digital record keeping

Making Tax Digital was expected to improve accuracy by requiring all VAT records and returns to be kept, linked, and filed digitally through compatible software. The value of errors made in the taxpayer’s favour outweighs those in HMRC’s favour. By reducing the scope for customer error and failure to take reasonable care, Making Tax Digital was expected to generate net additional tax revenue; making the tax gap smaller than it would otherwise be. HMRC’s evaluation used social research to prove that Making Tax Digital software led more businesses to update their records more frequently and to keep records digitally:

  • research with businesses mandated to join Making Tax Digital from April 2019 showed that 48% kept their VAT records up to date continuously compared with 38% before Making Tax Digital, and that 97% updated their records at least once a quarter (IFF Research, 2021). This finding was corroborated by results from the Small Business Survey which showed a similar pattern of increase in VAT record-keeping frequency (Department for Business and Trade, 2018 to 2019)

The type of compatible software businesses adopted was important for the success of Making Tax Digital in preventing calculation and transcription errors when compiling VAT records and returns. Fully functional software offers most capacity for preventing errors entering tax calculations, such as offering additional error correction tools and automatic bank reconciliation. The evaluation found a majority of businesses using fully functional software:

  • three-quarters (74%) of businesses mandated to join Making Tax Digital from April 2019 were using fully functional software, with 14% opting to use bridging software. Two-thirds, (67%) noted at least one way that Making Tax Digital had reduced the potential for mistakes, most commonly 61% saw reduced scope for error in the process of submitting the return to HMRC (IFF Research, 2021)

  • for those smaller businesses mandated to join Making Tax Digital from April 2022, over half (54%) were using fully functional software, with a quarter (26%) choosing bridging software. More than three-quarters (76%) agreed Making Tax Digital had reduced potential for error in at least one area tested. Most commonly 65% agreed there was reduced scope for error in submitting returns to HMRC (Verian, 2025)

3.2 Additional tax revenue

While the social research findings implied Making Tax Digital was generating additional tax revenue, further quantitative analysis was undertaken to corroborate this and quantify the impact. HMRC analysts used data from VAT returns to test whether VAT payments had increased as expected when Making Tax Digital was introduced (HMRC, 2022). The evaluation found that:

  • there is a high likelihood Making Tax Digital has generated additional tax revenue. This was estimated to be around £57 and £19 per business per quarter for businesses above and below the VAT threshold respectively: an increase in tax liability of around 0.9% and 2.2%, respectively (HMRC, 2022)

  • the additional tax revenue from Making Tax Digital is most likely of a similar magnitude to what was forecast and included in the public finances. Total additional tax revenue was estimated to be in the range of £185 million to £195 million for 2019 to 2020, depending on the extrapolation method used (HMRC, 2022)

From late 2018, Making Tax Digital was piloted before it became mandatory. This made it possible to evaluate additional tax revenue by comparing businesses that chose to join early in this way (i.e. a treatment group) to similar businesses that did not (i.e. a control group). Following academic advice on best practice, HMRC analysts used a combination of techniques to robustly estimate additional tax revenue due to Making Tax Digital:

  • matching techniques were applied to select treatment and control businesses that were a close match for each other based on a range of characteristics, such as industry and how digital they already were. This left Making Tax Digital as the main remaining observable difference between treatment and control groups

  • difference-in-difference analysis then estimated additional tax revenue. This compared the difference in average tax due between the treatment and control groups before and after the former joined Making Tax Digital. The difference between these two differences was positive, thus finding additional tax revenue due to Making Tax Digital

  • for a fuller explanation of the methodology and results, see HMRC (2022) and Annex A (A2.2, A2.7) of The Magenta Book

4. Customer impacts

The evaluation explored how the introduction of Making Tax Digital had gone for VAT customers, whether it made them more confident they had got their tax right and the costs and benefits to their business.

4.1 Preparation and ease of use

The evaluation found that nearly all VAT customers took steps to prepare for Making Tax Digital. A majority found it easy to sign up to, easy to find compatible software and easy to submit returns to HMRC:

  • almost all VAT customers indicated undertaking at least one activity to prepare for Making Tax Digital, with 93% of those mandated in 2019 (IFF Research 2021) and 91% of those mandated in 2022, doing so (Verian, 2025)

  • the most common preparation activity was discussing the changes with a tax agent such as an accountant or bookkeeper, with 65% and 55% of those mandated in 2019 (IFF Research, 2021) and 2022 (Verian, 2025) reporting this, respectively

  • two-thirds (67%) of all VAT customers mandated in 2019 and a similar proportion of those mandated in 2022 (63%), found it easy to sign up to Making Tax Digital, whereas a small proportion found this difficult (11% and 12%, respectively) (IFF Research, 2021 and Verian, 2025)

  • more than two-thirds (68%) of all businesses mandated in 2019 (IFF Research, 2021) and over half of those mandated in 2022 who were not already using software (52%) (Verian, 2025), found it easy to find a software solution. A much smaller proportion found this difficult (8% and 21%, respectively)

  • the majority of customers found it easy to make their first submission in Making Tax Digital, with 63% of all VAT customers mandated in 2019 and 57% of those mandated in 2022 saying so, whereas 17% of both groups found it difficult (IFF Research 2021, Verian 2025)

  • ongoing submissions thereafter were found to be easy by even more customers at 80% and 73% respectively, and fewer found this difficult (3% and 8%, respectively) (IFF Research, 2021 and Verian, 2025)

4.2 Improved confidence in getting tax right

Making Tax Digital was intended to improve customer confidence in getting their tax right. The evaluation found businesses that adopted fully functional software were more likely to report improved confidence their VAT returns were accurate.

  • research showed that confidence had improved since the introduction of Making Tax Digital. Over half (53%) of VAT customers mandated in 2019 agreed they were more confident about getting their tax right, compared to one-fifth (20%) who disagreed. Confidence was higher (59%) among fully functional software users (IFF Research, 2021)

  • such gains were more modest for those mandated from 2022, with slightly more than a quarter (27%) citing improved confidence since adopting Making Tax Digital, though this rises to over a third (36%) when considering only fully functional software users (Verian, 2025)

4.3 Customer benefits

HMRC expected both benefits and costs for businesses from complying with Making Tax Digital for VAT. The evaluation found this to be true for most businesses; although business size, and previous method of record keeping and submitting VAT returns all factored into how beneficial and costly the transition was for an individual business. The main evaluation findings here were:

  • almost 7 out of 10 (69%) businesses mandated in 2019 reported at least one benefit from adopting Making Tax Digital and that those benefits improved over time. A similar proportion of businesses mandated in 2022 (67%) agreed their experience of dealing with VAT had improved in at least one area (IFF Research, 2021 and Verian, 2025 respectively)

  • businesses that adopted accounting software for the first time (80%) and those that adopted fully functional software (76%) were more likely to report benefits from the transition to Making Tax Digital (IFF Research, 2021)

  • the most commonly reported benefits were preparing and submitting VAT returns faster (55% and 59% respectively), improved business confidence in getting their tax right (53% of businesses mandated in 2019) and the organisation is better at managing tax affairs (48% of businesses mandated in 2022) (IFF Research, 2021 and Verian, 2025)

4.4 Customer costs

The evaluation explored both transitional (one-off) and ongoing (annual) costs for businesses in complying with Making Tax Digital. It found:

  • more than half of VAT businesses reported experiencing some financial costs because of Making Tax Digital, with a similar proportion of those mandated in 2019 (55%) and those in 2022 (58%) (IFF Research, 2021 and Verian, 2025)

  • the most commonly reported financial cost was introducing a new software package by around a quarter of VAT businesses (26% and 27% of those mandated in 2019 and 2022 respectively). This was generally seen as an ongoing financial cost (IFF Research, 2021 and Verian, 2025)

  • other costs identified were transitional costs, the most common cited being the cost of discussing the changes with an agent, reported by 12% and 13% of VAT businesses respectively (IFF Research, 2021 and Verian, 2025)

4.5 Balance of costs and benefits

Overall, VAT customers were asked to weigh up any cost and effort from complying with Making Tax Digital against any perceived benefits from doing so:

  • nearly a third (30%) of businesses mandated in 2019 reported that the benefits outweighed any costs. A quarter (25%) felt the costs and benefits were evenly balanced, whilst 14% reported that the cost and effort outweighed the potential benefits for their business. A further quarter (26%) did not observe any costs or benefits from Making Tax Digital (IFF Research, 2021)

  • for smaller businesses mandated to join Making Tax Digital from 2022, a greater proportion reported that the benefits outweighed the costs (41%), however there were also a greater proportion of these businesses reporting that costs outweighed the benefits (23%) (Verian, 2025)

5. Wider economic benefits

In addition to Making Tax Digital making VAT quicker and easier to get right, by encouraging digitalisation it was expected to contribute to wider productivity gains for businesses. To gain a better understanding of the wider economic benefits of fully functional software beyond complying with tax obligations, HMRC commissioned a further study in 2023 (Verian, 2024).

5.1 Financial and operational benefits

Since the introduction of Making Tax Digital for VAT, of businesses using fully functional software:

  • around two-fifths (42%) of businesses had seen some improvements in one of the wider operational or financial areas tested. This included improvements in business continuity (30%), managing business finances (28%), dealing with their tax agent (24%) and business decision making (16%) (Verian, 2024)

  • a fifth (20%) said they were more likely to try new digital tools since the introduction of Making Tax Digital. Among the tools tested, digital invoicing was the most likely to have been implemented with 31% opting to do so (Verian, 2024)

  • around one-third (34%) of businesses had used fully functional Making Tax Digital software for other business processes and 14% had also introduced other software to manage other business processes digitally (Verian, 2024)

  • among more common additional features used with Making Tax Digital compatible software or other software introduced since Making Tax Digital were invoice generation (23%), financial reporting/analysis (18%) and automatic bank reconciliation (15%) (Verian, 2024)

5.2 Intangible benefits

Businesses experienced softer, less tangible benefits too (Verian, 2024). These included:

  • a more transparent relationship with HMRC (61%), more trust in HMRC (51%)

  • being more in control of their finances (48%)

  • being more confident using digital technology to manage taxes (24%) and to manage business processes more generally (21%)

5.3 Time saving and productivity

Ultimately, time savings and productivity improvements were key benefits:

  • many VAT businesses using fully functional software reported that Making Tax Digital made VAT returns faster to complete (58%) and lower effort (47%) (Verian, 2024)

  • 45% said Making Tax Digital software had saved them time, rising to 60% for businesses that experienced ‘a great deal of change’ with Making Tax Digital (Verian, 2024)

  • of businesses saving time with Making Tax Digital, two-thirds (66%) tended to use it to increase their productivity at work (Verian, 2024)

  • overall, around 22% of businesses perceived they were more productive with Making Tax Digital, compared to only 3% that felt they were less productive. The remainder felt no overall change (73%) (Verian, 2024)

5.4 Quantifying time savings

The survey data from Verian (2024) contained additional questions on the extent to which businesses using fully functional software had saved time on ‘business finance and record keeping’ tasks due to Making Tax Digital. HMRC (2025) used this to estimate average time savings per business and the financial value of this time:

  • on average, businesses saved time on their ‘business’ finances and record keeping’ compared to before Making Tax Digital. Across all VAT businesses using fully functional software, the time saved was estimated to be between 26 hours and 40 hours per business per year

  • when extrapolated to all VAT businesses using fully functional software, the estimated total time saving was between 32 million hours and 49 million hours in the 2022 to 2023 tax year. Using the hourly pay of occupations undertaking similar tasks as a proxy, the financial value of this time was estimated to be between £603 million and £915 million

  • the results provide clear evidence that Making Tax Digital is having a positive impact for businesses and demonstrate a wider economic benefit, beyond any requirement to meet tax obligations

6. Evaluation conclusions

In conclusion, the evaluation found that Making Tax Digital for VAT had the expected impacts and so successfully delivered against its objectives:

  • tackling the tax gap: More businesses keep their records digitally and update them more frequently. This reduced customer error and failure to take reasonable care, generating additional tax revenue, which was as forecast

  • customer impacts: A majority of customers found it easy to sign-up to Making Tax Digital, easy to find compatible software and easy to make their first and subsequent submissions. Many reported the change increased their confidence their VAT was right. Most businesses incurred costs to comply with Making Tax Digital, but most also experienced at least one benefit too

  • wider economic benefits: Fully functional Making Tax Digital software had operational and financial benefits for many businesses and has acted as a spur to digitalisation for some. Businesses that adopted it saved time on ‘business finances and record keeping’ tasks on average

The outcomes of this VAT evaluation have informed HMRC’s planned evaluation of Making Tax Digital for Income Tax Self Assessment.

7. Glossary

Term Definition
Additional tax revenue The amount of extra tax paid to HMRC due to Making Tax Digital reducing customer error and failure to take reasonable care.
Bridging software Compatible software that takes data from other software (for example, spreadsheet) and submits VAT information and returns to HMRC via an application programming interface in the required format for Making Tax Digital. It has relatively little or no additional functionality beyond this, unlike fully functional software.
Control group A comparator group of businesses that have not been treated by the intervention, used to measure its impact by comparing differences in the outcome of interest (additional tax revenue).
Difference in Difference analysis A method for estimating the difference Making Tax Digital made to tax revenue by comparing a treatment group to a valid control group before and after the intervention occurred.
Digital links Making Tax Digital requires specific information to be linked digitally between software programs with no manual intervention. Manually inputting such as ‘cut and paste’ or ‘copy and paste’ is not acceptable. This reduces the scope for calculation or transcription errors.
Error Errors result from mistakes made in preparing tax calculations, completing returns or in supplying other relevant information, despite the customer taking reasonable care.
Failure to take reasonable care Failure to take reasonable care results from a customer’s carelessness and/or negligence in adequately recording their transactions and/or in preparing their tax returns.
Fully functional software Compatible software that fulfils all requirements of Making Tax Digital (i.e. digital record keeping, submitting returns to HMRC) within a single application. Often includes additional functionality such as error checking, bank reconciliation and more.
Making Tax Digital for VAT The requirement for VAT registered businesses to keep digital records and file VAT returns to HMRC using compatible software.
Mandated The date it became mandatory for VAT businesses to meet Making Tax Digital requirements: from April 2019 for those with a taxable turnover of £85,000 or more and from April 2022 for those below that threshold. The evaluation covered both groups.
Tax gap The difference between the amount of tax that should, in theory, be paid to HMRC, and the amount that is actually paid. Causes include error and failure to take reasonable care.
Treatment group A group of businesses that have been treated by the intervention. Used to estimate its impact by comparing outcomes to a control group.
Value Added Tax (VAT) A tax added to most products and services sold by VAT-registered businesses. At the time of the evaluation, businesses had to register for VAT if their turnover was more than £85,000. They could choose to register if their turnover were less.
VAT administrative data Comprehensive data HMRC receives from VAT processes, and all submitted returns. Includes the business name, address, registration number and VAT liabilities and payments.

8. Annex A: Evaluation publications

Please refer to these original sources for any additional information. The 4 main published evaluation studies cited in this report are:

  • ‘The impact of Making Tax Digital on VAT customers with income over £85,000’: This externally commissioned research was a random sample survey of 2,005 businesses mandated to join Making Tax Digital from April 2019. It looked at the extent to which Making Tax Digital for VAT was achieving its objectives including reducing scope for error and making it easier to get tax right. It also considered costs and benefits to customers associated with the change to Making Tax Digital (IFF Research, 2021).

  • ‘Evaluating additional tax revenue from Making Tax Digital for VAT’: This technical paper estimates the additional VAT revenue generated when businesses joined Making Tax Digital. It uses VAT data from the pilot phases to compare businesses that voluntarily signed-up to Making Tax Digital ahead of mandation to otherwise similar ones yet to sign up. Additional tax revenue was estimated by comparing the average declared tax liability between the 2 groups (HMRC, 2022).

  • ‘Assessing the wider benefits of Making Tax Digital for VAT’: This externally commissioned research comprised thirty-six in-depth interviews and a survey with 2,300 VAT businesses using fully functional Making Tax Digital compatible software. It explored the business benefits of Making Tax Digital beyond tax administration (Verian, 2024).

  • ‘Impact of Making Tax Digital for below threshold VAT customers’: This externally commissioned research comprised a random sample survey of 2,042 businesses mandated to join Making Tax Digital from April 2022. Similar to IFF Research (2021), it looked at the extent to which Making Tax Digital for VAT was achieving its objectives, but for these smaller businesses (Verian, 2025).

Further published research supporting the Making Tax Digital programme can be found on the HMRC research pages on GOV.UK. A list of all published Making Tax Digital evaluation research:

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